Blog on the Run: Reloaded

Tuesday, October 20, 2009 8:15 pm

Calling out Sen. Kay Hagan

I mentioned earlier that North Carolina’s junior senator, Democrat Kay Hagan, had not signed on to S. 604, the Senate companion to Rep. Ron Paul’s HR 1207 audit-the-Fed measure. Now we know why: She opposes it:

Under common usage of the term audit — an examination of accounts and records — there is already a 100 percent audit of the Federal Reserve.

And the records of these audits are publicly available where, exactly?

Furthermore, Congress already reviews semi-annual reports on monetary policy submitted by the Board of Governors as required under the Full Employment and Balanced Growth Act (PL 95-523).

Bully for Congress. What about the rest of us?

When Congress passed the Federal Banking Agency Audit Act in 1978, the legislation attempted to balance the need for public accountability of the Federal Reserve with the need to insulate the Reserve’s monetary policy function from political pressures. I believe this balance must be maintained going forward.

Because that’s worked out so well up ’til now.

There are political pressures and political pressures. Messing with the money supply or meddling in markets for partisan advantage is one thing, and a very bad thing at that. That said, the public needs to know how its economy and its fiat currency are being managed, so that the experts among the public can advocate for policy on the basis of the soundest possible information. That isn’t happening now, mainly because under current circumstances, it can’t.

The formulation of monetary policy is a decision-making process that involves information gathering from a host of foreign governments and central banks. The information provided from those exchanges is critical and extremely sensitive. The immediate and broad disclosure that S. 604 would require could disrupt the financial markets, and jeopardize our country’s international finance relationships.

Release of information can be delayed just long enough to keep it from being able to move markets.

Ultimately, it would be taxpayers who would bear the brunt of any losses resulting from policies caused by untimely disclosure of sensitive information. Because of this, I do not believe the benefits of legislation like the Federal Reserve Sunshine Act outweigh the costs.

Like we haven’t been bearing the brunt of losses already.

As Zero Hedge points out, we need answers to other questions, among them:

Under what circumstances, and under what authority, did the Federal Reserve step in and become the lender of last resort to the entire world?

Given what has happened in the past year, why is it such a good idea to have the Fed (which is to say, us) remain on the hook for $6.5 trillion in other countries’ potential problems?

Why have we not mitigated the international conditions that made it necessary for the Fed to bail out these other countries, so that we’re at just as much risk now as we were before the collapse of Lehman Bros. a year ago?

To what extent do we recognize, and to what extent are we addressing, the dangers created by the weakening dollar? (Yeah, I realize a weak dollar should help exports, but with capacity down in the 60s and not likely to budge soon, it ain’t helping much.)

Why is the Fed’s discount window allowing banks to offer stock in bankrupt companies as collateral? And if the banks can do it, why can’t I?

Cuz here’s the thing:

… the Fed’s liquidity swaps are now back to almost zero. This means that foreign Central Banks believe they have the [foreign-exchange] swap and dollar maturity situation under control. They thought the same before Lehman blew up. And they were wrong. As the [dollar] continues tumbling ever lower [against the yen] to fresh 2009 lows, the trade de jour is once again the dollar funding one, although unlike before when the Yen was the carry currency of choice, this time it is the dollar itself, positioning banks for the double whammy of not just a dollar funding shock, but one coupled with a potential massive and historic short squeeze. If and when an exogenous event occurs, not even $6.5 trillion in Fed swap lines will be sufficient to bail out the world economy.

In plain English, if something else bad happens, we’re going to go through the same thing we went through a year ago. Only worse.

And then there are the categories of information Rep. Alan Grayson has asked for — and still not gotten:

  • Information that Bloomberg reporter Mark Pittman has requested via a Freedom of Information Act Request on the Bear Stearns rescue and that the Federal Reserve is contesting in the courts,[i] and which Manhattan Chief U.S. District Judge Loretta Preska has ordered by turned over by the Federal Resrve.
  • Information that Rep. Grayson requested in February at a hearing and by follow-up letter on which institutions received the $1.2 trillion added to the Federal Reserve’s balance sheet, how much reach institution received, and what was promised in return.
  • All Federal Reserve documents that went to Attorney General Andrew Cuomo’s office relating to the Bank of America/Merrill Lynch merger in which potentially illegal and coercive activity might have occurred, as well all Federal Reserve documents relating to the lawsuit pursued by Merrill Lynch shareholders in the US District court for the Southern District of New York.
  • Transcripts of all Open Market Meeting Minutes up to and including that of June, 2009, transcripts which are normally withheld from the public for five years.
  • Full disclosure of all terms and conditions of all off-balance sheet Fed transactions in the past three years.

In light of all of this, someone needs to explain to me again why Ben Bernanke should be re-confirmed. Because I’m thinking Sen. Hagan needs to vote a big, fat, resounding “Nay!” on that one.

Elsewhere, Zero Hedge writes:

We hope that the over 300 members of Congress who already support Ron Paul’s “Audit the Fed” Initiative consider the implications of what the Lehman fiasco has taught us, and how this unique look into the Fed’s balance sheet should be a very critical reminder of just how much risk the Fed is willing to take on with taxpayer capital when bailing out a financial system that, absent ongoing accounting gimmickry and endless Reserve Banking System subsidies, is still rotten to its core.

If they support Paul’s measure or its Senate companion measure, it’s probably because they’ve already considered those implications.

Sen. Hagan would be wise to do the same.

UPDATE: Kay, here’s a clue: Whatever Jon Kyl wants to do, both you and Americans in general are probably better off doing the opposite.

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